In case you didn’t know, an employer paying student loans is one of the hottest tax-free benefits in compensation management today. In fact, student loan repayment assistance as an employer contribution is the one new benefit that companies are providing to their employees (especially full-time employees) during their open enrollment period this year, according to Employee Benefit Adviser’s Open Enrollment Readiness Benchmark survey, sponsored by ADP.
As of March 27, 2020, Congress’ enacted this tax-free benefit as one of the key provisions of the Employer Participation in Repayment Act (H.R. 1043/S. 460) into a broad stimulus bill aimed at enhancing the US recovery from Coronavirus.
Employers can now make tax-free contributions of up to $5,250 per employee annually toward employee student debt without raising the employee’s gross taxable income.
That’s right: offering student loan repayment assistance programs yields a high return on your investment (ROI) in your employees. In fact, according to a survey by the private nonprofit group, American Student Assistance found that 86% of young employees would commit to their company for five years if it promised to help pay down their student loans.
If you’re looking to navigate the world of employer student loan repayment, you’ve come to the right place.
Without a doubt, you’ll leave this blog post with a better understanding of these assistance programs. We cover everything: from explaining how they work to what you can gain from these plans. We even go over some tips on student loan repayment that you can add-on as part of your workplace culture.
Without further ado, let’s jump right into it.
Employer Paying Student Loans: Understanding The Guide
Before we get into the meat of this post, we’ve taken the liberty to provide you with an overview of what you’ll find .
Use it as your map to get a heads-up on the topics I’ll be touching on:
- Employer Student Loan Repayment: An Overview
- Student Loan Relief Programs And How They Work
- Employer Loan Repayment Assistance Programs
- FutureFuel: A Quick Summary
- Things To Bear In Mind: Student Loan Repayment Plans
- Benefits of Paying Student Loans For Employees
- Employer Paying Student Loans – Additional Tips
Let’s dive in.
Employer Student Loan Repayment: An Overview
As an employer, chances are that one or more of your workers is struggling with student loan debt, especially if they hold a graduate degree.
Student debt isn’t a phenomenon that’s relegated to a subset of people who fit a specific profile. Neither is it something that is experienced by a small percentage of the US population.
According to a report from Forbes last year, there are 44 million student loan borrowers who are repaying loans today.
To make matters worse, these 44 million are collectively in the hole for $1.5 trillion. That makes student loan debt one of the highest consumer debt categories, second only to mortgage debt. According to a research report, in New York state alone student debt has gone over $90 billion.
As bad as that is, the Federal Reserve System released stats estimating that the average borrower has a balance of between $20,000 and $24,000 on their loans.
Of those indebted persons who enter the workforce, 20% struggle with making timely loan payments.
Both millennials and older employees alike are battling their own student loan crises. This stands true for both full-time and part-time employees.
As an employer, you can take an active role in helping them get one step closer to being debt-free.
Student Loan Relief Programs And How They Work
Before you can help your employees pay back their student loans through different methods, such as a monthly payment system, it’s important to identify the type of loan that your employee has.
There are two types of student loans: federal loans and private loans.
Federal student loans are loans given by the U.S Department of Education for students who are in need of financial support.
The loans fall under the William D. Ford Federal (Direct Loan) Program. If an employee takes a federal loan, their respective lender is the US. Department of Education.
On the other hand, private student loans are types of financial aids that are granted by private entities such as banks and credit unions, among others.
For these loans, the borrower bears no debt responsibility to the government. Rather, the borrower is indebted to the lender who sets the terms and conditions of the loan.
Knowing the type of loan you’re dealing with helps you to come up with a strategy to pay it.
For example, usually, federal loans have lower interest rates than private loans and even the interest rates of credit cards. They also have more benefits, like the option to make payments via income-driven repayment options. This could make debt repayment relatively easier.
By contrast, private loans are more expensive than federal loans because of their interest rates. These loans are likely to make it even more difficult for you to meet your financial goals.
For that reason, you may find that refinancing either a private or a federal loan may help in your repayment strategy.
This is all the more beneficial if you want to pay off student loans fast.
By refinancing a loan with another private firm, you get to re-negotiate the terms and conditions of your existing loan, like its interest rate.
Therefore, as an employer, before you go about exploring options to help out your employees with their student loans, you may find it more financially viable to have them refinance their loans first before you take any action.
Employer Loan Repayment Assistance Programs
There are loads of programs out there to help employers paying student loans. However, it is important to note that student loan repayment is different than tuition reimbursement programs.
Employers have a lot of flexibility in how they decide to incorporate student loan repayment benefits in their workers’ compensation packages. You control just how much student loan repayment benefits that your employees can access from you.
Some employers make direct student loan contributions, at times matching a worker’s retirement contributions to their student loan payments. This can be especially helpful for international students who often have to pay more in student loans.
Employers make these types of contributions within their benefits packages.
One of these is a flexible benefits plan. Under these plans, employees get to alter their compensation package to suit their personal preferences.
Employees apply the money that they receive to a menu of benefits created by the executive management of their .
Then, there are other programs that employers can decide to partner with that go a lot further than just clearing their debt.
These programs teach employees the best way that they should repay the loans that they borrowed from their respective lenders.
Here’s an example of one of these programs.
FutureFuel: A Quick Summary
FutureFuel.io is a that organizations may partner with to help their employees get out of debt fast.
Branded as the debt-crusher, FutureFuel strives to make repaying student loans a lot simpler would expect it to be.
In a nutshell, FutureFuel leverages the power of technology to offer a mobile platform that is easy to use, modern, and most importantly, grants its users access to student debt centric benefits.
How it works is that employers who are affiliated with the program offer FutureFuel to their employees who are in student loan debt.
FutureFuel then prompts these staff members to create personalized accounts which they will use to access their loan data.
FutureFuel’s platforms are secure and encrypted so that users won’t have to worry about unauthorized personnel accessing their sensitive information.
This ‘s also makes provisions for employers who contribute to their employees’ student loan payments.
Just like employees, an employer can create their own login credentials and make safe and secure payments to their staff’s loans.
is a synopsis of what users can expect from this :
- Existing student interest rates can be lowered by as much as 1.7%
- Top-notch security on their digital platforms
- Engaging and modern user interface
- Payment notifications that update in real-time
Despite its recent entry into the student loan world, FutureFuel has big plans to make a dent on the student debt crisis. As part of their goals, they hope to eliminate as much as $30 billion in student debt by 2021.
Things To Bear In Mind: Student Loan Repayment Plans
Apart from loan refinancing, there are a couple of other factors that employers need to remember when paying student loans.
One of them is that employer student loan repayments are taxable. This means that any sort of money that you allocate towards paying back a student loan is considered taxable income.
That said, Congress passed a motion to do away with this tax law through the introduction of the Employer Participation in Student Loan Assistance Act or more commonly known as Employer Participation in Repayment Act.
If approved, this act serves to amend the current IRS tax code so that any assistance that employers give for student loans will go tax-free. However, for now, these payments remain taxable.
The other thing is that some of your employees may not have just one loan; rather, some of them took several smaller loans to fund their college degrees.
While these loans are smaller in amount, it can be cumbersome to keep track of all of them.
As a result, if any of your employees finds him or herself in this situation, you should have that employee consolidate their loans under one (1) single loan before you lend a helping hand.
Doing so will help to better organize a loan repayment strategy using the solution of your choice.
Benefits of Paying Student Loans For Employees
Earlier, I touched on a few of the benefits that come with an employer paying student loans for their staff. Let’s take a more in-depth look now so that you get a comprehensive understanding of what’s in it for you:
- Increased Employee Retention – Make no mistake: student loan financing is the most coveted employee benefit. It’s not just me saying it: Forbes and BenefitsPro are both in agreement: it’s what employees want the most from the companies they work for. The American Institute of CPA released a study: 80% of workers prefer to work for a that has great perks than one which doesn’t but offers a 30% increase in salary. Consequently, offering a student loan repayment program will lessen the likelihood of your employees handing in a resignation letter.
- Boost Productivity: There is a direct relationship between an employee’s happiness and their productivity – the happier your employees, the better they work. Including some sort of employee student loan assistance will have a positive domino effect on the levels of productivity within your organization.
- Attract Millennials – There are a few things that categorize millennials: they’re young, fresh, sharp, and often times entrenched in student loan debt. If there’s one group of people that are looking for financial assistance on student loans, it’s millennials. If you’re a that’s looking at onboarding young, sharp , student loan assistance programs are the bait that will help you to reel them in.
- Show That You Are Personable: By offering to help employees pay back their student loans, it shows them that you sympathize with the issues that they face. In doing so, it demonstrates sensitivity and understanding, two emotions that are respected and valued among employees.
- Make Them Feel Valued – When you make such an offer to an employee, it’s a silent acknowledgment of your appreciation for the hard work that they do. In simpler terms, it’s like giving positive employee feedback. In turn, they will take your gesture as proof that you value them. Employee appreciation is yet another way that you can reduce your employee turnover rate.
Employer Paying Student Loans – Additional Tips
While employer loan repayment assistance programs do bring several benefits to your while simultaneously helping to lessen student debt, that doesn’t mean that you have to stop there.
There are other ways in which you can contribute to student debt clearance. You can merge these tips with financial assistance programs to make a bigger dent in student debt.
These tips include:
- Conducting student loan refinancing workshops to educate your staff on the options that they have at their disposal to pay their students the smart way.
- Sharing daily financial saving tidbits to help your workers budget their allowance and spend wisely.
- Instilling sound financial habits by way of encouraging your staff to save a portion of their weekly allowance for rainy days.
These tips work in tandem with loan assistance programs to teach your staff the importance of financial literacy. The skills that they learn will prove invaluable throughout their lives.
In short, as an employer, you have the power to touch your workers’ lives in a big way.
Do your part by helping set them on the path to financial stability and wealth.